Rebuilding your Credit After Bankruptcy

I came across this Blog posting recently and I think many of our readers would be interested in it so here it is.  

How to Rebuild Your Credit After Bankruptcy from Money Talks 

Hope you find it helpful

"Defalcation" in Bankruptcy

According to a recent Supreme Court decision the term "defalcation" in the Bankruptcy Code includes a culpable state of mind requirement involving knowledge of, or gross recklessness in respect to, improper fiduciary behavior.

Read the complete decision here 

Spousal Privilege

I came across a good article about the interactions between spousal privilege and the attorney client privilege.  This issue doesn't come up all that often in a Bankruptcy context but understanding the limitations of these privileges can still be quite useful to the readers of this site.  This understanding can help to ensure that confidential communications between spouses and between attorney and their clients remain privileged.

Jason Miller the author of the article is an up and coming legal superstar.  If you are considering law school it might be worth a look at his book on that topic as well.  

                                                                    

Either way check out the short article on privilege.  

Do I have enough or too much debt for Bankruptcy?

The short answer is if you have debt you have enough and you don't have too much.  In an overwhelming percentage of cases individuals can qualify for some form of bankruptcy.  

I have noticed that a significant percentage of my page traffic results from people attempting to find the answer to some variant of this question. “How much debt do I need to have to file Bankruptcy?” Sometimes it is phrased differently.  They may ask "Is $10,000 in debt enough to file bankruptcy?"  Or they may even ask if $100,000 dollars is too much to file bankruptcy.  It could literally be all sorts of variants on this theme.  In the end though it all amounts to “Should I file?”  or given my situation is bankruptcy a good idea for me?

This is the fundamental question that my book “Should I File: A Definitive Guide to Bankruptcy” attempts to answer and for that reason I think these people would be well advised to take a look at it.  It can be bought by clicking various links on this site or just by going to Amazon and typing it in.

For those of you who aren't sure if you want to buy the book I did address this issue briefly in a previous post entitled “Ok, But do I Qualify? This post answers the basic question of whether or not you qualify. 

Additionally you might want to consider whether or not Bankruptcy is right for you and your circumstances. 

A consult with a qualified bankruptcy attorney should help you to resolve this issue but keep in mind they make money by filing bankruptcies and therefore some of them may be more interested in talking you into filing than actually steering you in the right direction.  I have known many good bankruptcy attorneys but I have also known some that were less than scrupulous.  Be careful when selecting one.  The best thing you can do is educate yourself in advance.  Keep reading this site, consider buying the book which at fifteen dollars is a lot cheaper than being talked into a bankruptcy you don’t need.  

The book will help you avoid making a rash decision and will also help you select a good attorney if you determine that bankruptcy is the right choice for you. 

Bankruptcy can help but it can also be painful particularly if it is not handled competently so make sure its the right choice for you and that you have quality legal assistance before jumping right in.  

Rebuilding Credit after Bankruptcy

The good news is that your credit will take care of itself.  If you pay your bills on time and don’t over load yourself with new debts, your credit will heal itself.  The amount of time it takes to repair your credit is dependent on you.  It takes 10 years for the Chapter 7 bankruptcy to clear off your credit report for good.  So the worse case you wait 10 years, but the good news is that you can repair credit much faster by taking a few simple steps. 

• Pay whatever bills you have on time all the time.  You no longer have any margin for error.  I don’t think that this should be too difficult since you no longer are overwhelmed by debt. 

• Get a small credit card or a store card.  Use it a little but make sure you pay it off every month

            Perhaps buy a single tank of gas a month on it.  Whatever you do make sure you put the cash away to pay it off you can’t afford to fall back into the same situation.  This will take discipline but it is worth the effort. 

            Establishing good credit takes work but it is fundamentally about having a low debt burden relative to your income and paying your bills on time.  Once the bankruptcy is complete you should have already reduced your debt burden.  All that is left is to pay your bills on time.

            You are better off not having credit than abusing credit.  It’s up to you, but if you aren’t sure that you can handle a credit card then don’t get one.  Don’t go finance a car at 18 percent interest.  Make smart decisions and you will be able to buy a car for cash or at the very least get a reasonable interest rate.  If you are considering a big purchase, put the projected payment amount away for a couple of months before hand.  This will do two very important things for you.  One it will show you if you can afford the payment.  If you are having trouble saving the amount of the payment then it is probably too high.   You should also save and put away the amount of an increase in costs associated with the purchase (extra insurance, fuel, etc.)  The second reason to do this is it creates a buffer for you if something changes.  If you keep two months expenses on this purchase in a separate account the money will be there if an emergency occurs. 

            Finally before you buy anything or get any credit, do yourself a favor.  Make sure you understand how much you make and where it goes.  Write a budget, they may not be fun but a good budget is almost guaranteed to improve your credit and your life over the long run.  You will be able to see what you can and cannot afford.  You will be able accurately understand your true financial picture.  This kind of understanding is essential to avoid the mistakes that got you to where you were. 

            You’re done now, you can’t change the past but you can make sure it doesn’t happen again.  I wish you the best of luck and know that you can get through this process.  I have helped hundreds through it and my colleagues have helped millions.  There is no reason that a bankruptcy should ruin your life.